Final Results

RNS Number : 0016L

Gresham Computing PLC

29 April 2010

 



Gresham Computing plc

Annual Financial Report Announcement

29 April 2010

Gresham, the specialist provider of real-time financial solutions reports its results for the financial year ended 31 December 2009.  Trading results were in line with the Board's expectations where, following a difficult period, we have now seen the results of our comprehensive restructuring coming through in a profitable and cash generative Q1 2010.  Highlights are set out below:

·      Sales £9.9m (2008: £13.9m) with planned reduction from:

o  Restructuring of the businesses

o  Disposal of two non-core businesses

·      Trading loss £2.4m full year (2008: £0.4m loss) but with a much improved H2 2009 and Q1 2010

o  Restructuring completed with £2.6m cost savings per annum realised for 2010

o  Small Q1 2010 profit

·      Loss after tax £7.4m (2008: £0.03m profit)

·      Cash £0.7m (2008: £1.2m)

o  Increased to £1.0m by end of Q1 2010

o  £0.8m (net of expenses) to be raised through a placing of new shares, announced today

o  £0.4m deferred cash proceeds receivable Q2 2010 from 2009 non-core business disposals

·      Board and advisor changes

o  Andrew Walton-Green steps down as CEO

o  Chris Errington (currently FD) becomes interim CEO

o  Rob Grubb (currently group financial controller and company secretary) becomes interim FD

o  Singer Capital Markets appointed as broker and financial advisor

·      Outlook

o  Significantly improved trading in 2010 from a stronger and more visible financial base, building on the result from the first quarter.

Chris Errington, interim CEO of Gresham, commented:

"In 2009, we aligned our cost base with visible revenues whilst at the same time re-setting our balance sheet to focus on growth.  We successfully completed a major cost reduction exercise whilst preserving our ability to service customers and grow the business in core areas.  As a result, we incurred a large loss in 2009.  However, we entered 2010 far stronger as a result of these changes and, importantly, I am pleased to report both a profit and cash generation in Q1 2010.

Today, with the support of our major shareholders, we announce a proposed new issue of shares to raise an additional £0.8m (net of expenses) of cash to further strengthen our balance sheet, subject to AGM approval.

We are now confident that the restructuring completed in 2009 and the customer interest in our market-ready products will see us delivering significantly improved trading in 2010, building on the result from the first quarter."

- Ends -

For further information please contact:

Gresham Computing plc	[phone]
Chris Errington, interim CEO
Singer Capital Markets Ltd Shaun Dobson, Partner and Joint Head of Corporate Finance	[phone]
James Maxwell, Director of Corporate Finance

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

In accordance with the Disclosure and Transparency Rules, we set out below the extracts from the 2009 Annual Financial Report in un-edited full text. In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the 2009 Annual Financial Report. 

CHAIRMAN'S STATEMENT

We emerged far stronger and well prepared for market from what was a difficult 2009 for Gresham.

Whilst the global economy continued on its uncertain track through 2009 and into 2010, demand from bank and financial institution customers and Q1 2010 performance gives us a sense of optimism for 2010. However, we have based our future business strategy on the cautious assumption that any economic recovery will be slow to materialise. 

We successfully completed a major cost reduction exercise whilst preserving our ability to service customers and grow the business in core areas. At the same time, we have restructured our balance sheet and written down certain assets based on our more cautious views on growth in the current economy.  The result of this restructuring is now clear to see in 2010, where we have delivered a small profit in the first quarter and grown cash balances. 

In August 2009, Ted Aves stepped down from the board after nearly 10 years as a non-executive and Max Royde joined us in his place.  I would like to thank Ted for his commitment and contribution to the company over many years whilst at the same time welcoming Max to the board.

Today we also announce that Andrew Walton-Green has resigned as chief executive officer and director of Gresham Computing plc with effect from 28 April 2010.  The Board thanks Andrew for all his work at Gresham and wishes him every success for the future.  Chris Errington, our Finance Director, will be acting CEO while we search for a replacement. 

I would like to thank all the Gresham staff around the world for their continued hard work and commitment and look forward to working together to now deliver on our market opportunity.

We now have a strong platform from which to grow our real-time financial solutions business and the company is in a stronger position.  Early signs in 2010 encourage me to believe that the banks and financial institutions are re-entering a procurement phase and I look forward to improved results and growth in 2010 and beyond.

Eric Sepkes

Chairman

28 April 2010

OPERATIONAL REVIEW

Gresham Computing plc is a specialist provider of real-time financial solutions.  Our strategy is to grow annuity revenues from real-time financial solutions to build on existing annuity revenues from our more established products.  The Board is confident that the potential revenue growth from these real-time financial solutions is material.

The Board completed a major restructuring in 2009 designed to improve focus on real-time financial solutions and bring costs in line with visible revenues.  The restructuring is now complete and has reduced our cost base going into 2010 by over £2.6m per annum, without compromising our ability to deliver core solutions in real-time financial solutions.  We also sold two non-core businesses to increase our focus. 

Over the past few years we have invested in developing a small number of highly functional and innovative solutions for the real-time financial solutions market based around our core banking and integration technologies in addition to developing relationships with our software partners.  The group also has an existing strong core of products and services that generate substantial revenues with good visibility.  These changes made in 2009 have created a stable platform from which to build new annuity revenues in real-time financial solutions.  The close alignment of our cost base to existing recurring revenue streams significantly reduces the new revenues we now have to win each year just to cover existing costs.

The results for 2009 show a significant loss, reflecting the period of transition as we restructured the business.  However, as a result of the restructuring, trading performance improved towards the end of 2009 and improved more dramatically in the first quarter of 2010.  We delivered a small profit before tax from £1.9m of revenues in Q1 2010, a result significantly ahead of 2009 trading.  We also saw cash balances increase by £0.3m in Q1 2010 and some specific examples of growth in our real-time financial solutions business.

Our outlook for 2010 trading is optimistic but we remain cautious in the current economic environment.

Real-time financial solutions

Our focus is on growing real-time financial solutions business, including:

·      Clareti Cash Reporting.  A technology that accepts multiple types of payment information generated by banks and corporates, normalises the data and passes it on for use by banks or corporates to manage both risk and cash situations.  An embodiment of the technology is the Clareti Cash Reporting Service ("CCRS"), which provides banks with access to real-time information about payments enabling them to better control liquidity and risk;

·      Clareti Supply Chain Financing.  A technology that accepts supply chain information from a corporate and presents that information to its suppliers which allows that supplier to take early payment of the invoices presented; and

·      Clareti Banking.  A well established core banking system with over 30 financial institution customers.  The software is proven and we believe has growth potential outside of the existing Caribbean market.

Supporting these solutions is our system integration and implementation abilities developed over the past 20 years and representing one of our core competencies.  These skills are essential in the real-time financial solutions market, where we work with both our own product and that of partners to deliver innovative solutions.

The combined underlying revenue from the above activities was about £5m in 2009, 40% of which was annuity maintenance income. 

We have a number of banks that use CCRS on a daily basis and their use has increased during 2009.  Going into 2010, we are working with these banks to expand their use of CCRS further as well as seeking to add new customers.

The major contract with a global banking group, announced in April 2009, for payment gateway and a cash reporting solution has not progressed further than a framework agreement at present, although we continue to work with our partner to progress this relationship in 2010.

During 2009, we saw much interest in our Supply Chain Financing solution both from banks seeking a hosted solution for their customers and from individual corporate customers looking to deploy a hosted or in-house solution to their own supply chain.  We took on a more central role in the deployment and management of the hosted solution to customers of a major bank in Australia.  In March 2010, we signed contracts to deploy our first corporate customer solution to a major company in the UK which will provide a local case study for such deployments.

In the Caribbean, we continue to work with customers to provide core banking technology both on an in-house and also an outsourced, centrally hosted, basis.  Work commenced in late 2009 on the deployment of our banking solution in the Bahamas and this together with strong demand for services from existing customers has driven a strong performance in Q1 2010.  In 2009, we began looking at new markets for our Banking solution and are currently working with a partner in EMEA to secure our first deployment of this technology outside of our traditional Caribbean market. 

In 2008, we commenced a major project to implement a partner's treasury management solution in Australia.  The project has progressed slower than hoped leading to additional irrecoverable costs on the project in 2009.  However, we now expect to complete the implementation in 2010.

In 2004, we combined a partner's cash management technology with our own integration technology to create an integrated cash management solution for a major UK bank.  The solution is currently available to corporate customers of the bank on either an integrated (i.e. locally installed) basis or a hosted basis, through the bank's own internet banking system.  We made good progress with this solution in 2009 and have seen good annuity income growth from the Software as a Service model in Q1 2010.  We also renewed and extended our partnership with our technology partner, as explained further below.

Real-time financial solutions also include revenues for 2009 as follows: £1.3m VME software (75% of which is annuity income), £1.0m IT staff placement and £0.3m Gresham Software Labs Pty Ltd.   The IT staff placement business was restructured in early 2009 and is not expected to form a significant element of group revenues from 2010 onwards.  Gresham Software Labs was sold in August 2009.

Our VME software business generates strong and reliable cashflows with the software embedded in large organisations.  Our VME utility software is installed at most of the large users of the Fujitsu VME platform in the UK, including the largest user which is the UK government.  The VME market is mature, well defined and stable, with Fujitsu committed to supporting the VME platform until at least 2020.  We generate license revenues when customers upgrade or change their use of our software but the majority of revenues are from software maintenance.

The total revenue from real-time financial solutions as described above was £7.6m in 2009.

Storage

Entering 2009, we were still investing in our new Storage Director ("SD") business which operated alongside our established EDT software business.  In October 2009, we sold the SD business to focus on EDT, realising a very significant change in business profitability as a result of an associated 70% reduction in headcount.

Our EDT storage software business generates strong and reliable cashflows and the software is embedded in large organisations.  Revenues from this business in 2009 were £2.3m, 75% of which is annuity maintenance income.  EDT storage software is installed at over 125 larger customers globally.  The market for this product has remained relatively resilient over the past few years despite its maturity and the availability of substitute products.  Whilst we do makes sales to new customers, our license and maintenance revenues tend to be derived from existing customers.

The Market

The market for real-time financial solutions has changed in the last two years, with customers adopting a more cautious approach to new expenditure in light of the current economic environment and more stringent purchasing conditions imposed upon them.  There is now a far greater focus on payback period and return on investment together with a driver for less up-front payments and more 'Software as a Service' arrangements.  Our solutions score well in these areas, although lead times to order remain protracted.

Existing customers for our software and real-time financial solutions have invariably already critically reviewed their need for technology and especially the ongoing costs of maintenance.  Since our software and solutions deliver high value to customers and are often deployed in mission critical situations there are strong drivers for customers to keep them deployed.  As a result, we have not experienced a major impact on maintenance renewal rates or values in 2009, nor going into 2010.  In fact, the return of inflation will lead to a small amount of growth in software maintenance in 2010 compared to a relatively stagnant 2009.

The first quarter of 2010 saw a number of markets for our solutions re-opening after a long period of uncertainty.  We are seeing more interest in real-time solutions and recently the availability of budgets to purchase risk mitigating, cash controlling and profit enhancing solutions. We made good progress with sales in a number of areas during Q1 2010 and we are now cautiously optimistic about further growth, whilst remaining realistic and wary of long lead times.

Customers

Our strategy is to build long term annuity revenues from existing and new customers to increase the visibility of revenues going into future years, with a particular focus on real-time financial solutions.

Gresham has a loyal and diversified customer base with a number of our key software customers having now been on maintenance with Gresham for over 30 years.  Even our more typical relationships are in the 5 to 20 year range, which is relatively long lived compared to our competitors.  Typical contract periods for software maintenance are in the 1 year to 5 year band, with a weighting towards the 1 to 2 year period.  Banking contracts for a deployed solution tend to be in the 4 to 10 year band.  Our general experience over the years is one of automatic contract renewal at the end of the term and this has not been significantly affected by the economic downturn either in 2009 or so far in 2010.

Technology Partners

In April 2010, we renewed and extended our partnership with our provider of cash management technology for a major UK bank. The extended contract expands the parties' substantial commitment to customer service and provides an improved platform from which to meet customer growth aspirations in 2010 and beyond.

Financial Review

Revenue in 2009 was £9.9m compared to £13.9m in the prior year, with revenue reducing by £4.0m predominantly because of a planned reduction in the IT staff placement business (£1.8m), the change associated with our cash reporting business (£1.0m and as per note 26 to these financial statements), not repeating a major implementation contract in 2009 (£0.5m) and the impact of business disposals (£0.6m).

We have a strong recurring revenue base from past sales of software and ongoing professional services generating approximately £6.0m of revenue per annum going into 2010.  We have good visibility over a further £2m of revenues from delivery of professional services to the existing customer base, based on a prudent assessment of historic trends.  When the reduced cost base is taken into account, we are now capable of delivering much improved results from the existing installed base, without growth from new solutions and customers.  New sales will therefore have a far more visible impact on trading than was previously the case.

The following table provides an analysis of trading for 2009, identifying the various costs associated with transitioning the business in line with our strategy:

	(Loss)/Profit after tax			Adjusted EBITDA
	2009	2008		2009	2008
	£'000	£'000		£'000	£'000
Trading	(2,363)	(383)		(1,535)	506
Restructuring costs	(1,139)	(150)		(1,139)	(150)
Asset impairments	(2,826)	(36)		0	0
Profit / (Loss) on disposal of businesses	(1,036)	599		(1,036)	599
	(7,364)	30		(3,710)	955

The result for the year has been significantly affected by the one off costs associated with restructuring and disposals.  These costs were associated with a 30% reduction in headcount, restructuring partner relationships, losses on the sale of non-core businesses and the impairment of intangible assets in light of the changes in the business and the market.  The one off costs associated with these changes totalled £4.9m, comprising: £1.1m headcount and other restructuring costs, £2.8m non-cash asset impairment charge and a £1.0m net non-cash loss on disposal of businesses.   The restructuring also led to disruption of activities in the second half of 2009 that impacted trading adversely.

The North American real-time financial solutions business grew revenues slightly after taking into account the disposal of Redstone in 2008 and exchange rates.  After adjusting for the disposal profit on Redstone in 2008 and restructuring costs in 2009, the result was broadly the same as that for 2008.

The Asia Pacific real-time financial solutions business saw revenues decline after adjusting for the disposal of GSL and exchange rates because of the impact of a large software implementation sale in 2008 that did not repeat in 2009.  After adjusting for the disposal profit on GSL and restructuring costs in 2009, the result was slightly behind that from 2008 primarily because of the large 2008 sale that did not repeat in 2009.

The EMEA real-time financial solutions business includes revenues in respect of our IT placement business, where we saw a reduction of £1.8m in revenues 2009 on 2008, in line with our strategy to move away from this high volume low margin business.  The revenues associated with the arrangement with Cable & Wireless (as described in note 26 to these financial statements) reduced as expected by £1m.  The remainder of the business saw a number of ups and downs but overall was just behind revenue in the prior year.  After adjusting for the impact of the revenue changes discussed above and restructuring costs in EMEA, the result was behind that from 2008.

The storage solutions business saw revenues remain relatively flat, experiencing only a small reduction in 2009 compared to the prior year at constant exchange rates.  After adjusting for the loss on disposal of SD, the business showed an improved performance compared to 2008 primarily because of the significant impact that the restructuring had on this business towards the end of the year. 

Working capital

The restructuring had a significant impact on working capital.  Initially, the impact was negative arising from the reduction in headcount balanced to an extent by cash inflows from the disposal of businesses in the same period.  Entering 2010, the impact has been very positive since we now have a significantly lower cost base beneath a more stable cash generative platform.  The net cash inflow in Q1 2010 is really the measure of how much our business has changed.

In 2010, we are contracted to receive a further £0.4m cash inflow arising from the disposal of our Storage Director business in October 2009.  We also have a number of other significant one off cash inflows arising from both non-trading, such as tax, and trading, where we expect to collect some long term contract debtor balances deferred into 2010.

A proposed placing of new shares will supplement existing working capital providing further stability to the group as we look to grow our real-time financial solutions business, as discussed further below.

Asset impairment charge

The total asset impairment charge for 2009 is £2.8m comprising a significant non-cash impairment of intangible fixed assets.  This charge reflects our cautious view as to the timing and value of future revenues associated with the assets, although not our underlying belief in the potential value of assets themselves.

Foreign exchange

The weakness of the pound continued to have a significant impact on our reported results; increasing the real net cost of restructuring our North American businesses in 2009.  In 2010, we are currently benefitting from the weakness of the pound since our restructured North American EDT software business has become a net generator of US$, which we exchange into pounds and hedge as appropriate.

Our business plans assume more conservative exchange rates than those experienced in Q1 2010.

Taxation

The tax credit of £0.3m in the year relates to our claim for research and development tax relief in the UK together with a claim for repayment of foreign tax payments on account.  We expect repayment of the research and development tax credit in 2010, although recovery of the foreign tax repayment may take a little longer.

Disposal of businesses

As part of our restructuring plans in 2009 we exited a number of non-core businesses to fund the restructuring and to increase focus on core business.  During 2009 we completed two such disposals.

In August 2009, we sold our wholly owned subsidiary Gresham Software Labs Pty Ltd ("GSL") to comForte GmbH for £0.4m in cash, all of which was received in 2009.  GSL sells software and support into the HP NonStop market globally.

In October 2009, we sold our SD business to Tributary Systems Inc, an existing SD sales partner, for £0.8m in cash; £0.3m of which was received in 2009 with the remainder due to be received by mid 2010.  Whilst our investment in the SD product continued to show signs of great promise, with customer growth, the Board decided that the group could not continue to focus attention and resources across such a wide range of diverse activities but rather should focus investment on the real-time financial solutions market.  The risk associated with delivery of SD sales is now with the buyer and we will instead receive a share of their success up to US$1.8m over 5 years dependent on performance; none of which is recognised in these Financial Statements.

Further information concerning these disposals can be found at note 16 to the Financial Statements.

Disposal of property

In May 2009, we sold and leased back our head office in Southampton generating a net £0.8m of cash.  The sale followed a decision taken by the Board in 2008 to increase the group's liquidity by converting illiquid assets to liquid assets.  The company has entered into an agreement with the purchaser to lease the office back for a ten year period, with a 5 year break option.  Further information concerning this disposal can be found at note 12 to the Financial Statements.

Board composition

In August 2009, Max Royde joined the Board as Non-executive director and Ted Aves stepped down from his role as Non-executive director. 

Andrew Walton-Green has resigned as Chief Executive Officer and director of Gresham Computing plc with effect from 28 April 2010, after the Board has approved these financial statements.  The Board thanks Andrew for all his work at Gresham and wishes him every success for the future.

The Group will shortly commence a process to recruit a new Chief Executive Officer.  In the meantime, Chris Errington, Finance Director, will take on the role of interim Chief Executive Officer.  Rob Grubb, Company Secretary and Group Financial Controller, will take on the role of interim Finance Director.

Proposed placing of new shares

We are today announcing a proposed placing of 5,285,089 million new Ordinary Shares at a price of 15.75 pence per share with institutional and other investors in order to raise £0.8m (net of expenses).  The funds raised will be used to strengthen the company's balance sheet, fund ongoing capital requirements and to fund expansion of the business.

The proposed placing is subject to shareholder approval at the Annual General Meeting of the company scheduled to be held in June 2010 where a resolution will be proposed that the directors be empowered to disapply pre-emption rights in relation to the allotment of new shares in connection with the placing of up to 10% of the issued ordinary share capital of the company (existing authorities being 5%).  The AGM notice together with a circular providing more detail on these proposals will be posted to shareholders together with the Annual Financial Report shortly. 

Outlook

The major restructuring undertaken in 2009 has had a very positive impact on the financial position and results of the company.  In Q1 2010, we saw solid performances from our software businesses together with progress in the real-time solutions business, especially as regards growth in the cash management solution sold by a major UK bank and most recently in supply chain finance.

In March 2010, we signed an agreement to provide a major UK company with our supply chain finance technology deployed on a partner's hosted platform.  Once live we will receive a transaction fee for use of the platform, subject to payment of a minimum fee per month.  This builds upon our existing experience of deployments in Australia.

Despite signs that trading conditions in our chosen markets are improving, like many companies in our position, we remain cautious as to outlook.  We have modified our business plan in anticipation of a relatively slow recovery from economic recession.  It is unlikely that lengthened sales lead times will improve in the short term, but we have been encouraged by progress in 2010 so far. 

We are now confident that the restructuring completed in 2009 and customer interest in our solutions will see us delivering significantly improved trading in 2010 from a stronger and more visible financial base, building on the result from the first quarter.

Chris Errington

Finance Director

28 April 2010

Consolidated Income Statement	Notes	31 December	31 December
For the year ended 31 December 2009		2009	2008
		£'000	£'000
Revenue	3,4,26	9,886	13,894
Cost of goods sold		(5,474)	(7,623)
Gross profit		4,412	6,271
Administrative expenses		(11,076)	(7,090)
Trading loss	5	(6,664)	(819)
Loss on disposal of fixed assets		(8)	-
Profit on disposal of subsidiary undertaking	16	132	599
(Loss) on disposal of business	16	(1,168)	-
Finance revenue	3,8	10	71
Finance costs	8	(21)	(2)
Loss before taxation		(7,719)	(151)
Taxation	9	355	181
Attributable to equity holders of the parent	24	(7,364)	30
Earnings/(loss) per share (total and continuing)
Basic (loss) / earnings per share - pence	10	(13.93)	0.06
Diluted (loss) / earnings per share - pence	10	(13.93)	0.06

Consolidated Statement of Comprehensive Income	31 December	31 December
For the year ended 31 December 2009	2009	2008
	£'000	£'000
Attributable (loss) / profit for the year	(7,364)	30
Other comprehensive income
Exchange differences on translation of foreign operations	35	358
Exchange differences transferred to income statement on disposal of subsidiary undertakings	39	(107)
	74	251
Total comprehensive (loss)/income for the year	(7,290)	281

Consolidated Statement of Financial Position	Notes	31 December	31 December
At 31 December 2009		2009	2008
		£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment	12	235	652
Intangible assets	13	1,757	6,810
		1,992	7,462
Current assets
Trade and other receivables	17	3,140	3,239
Inventories	15	-	20
Income tax receivable	17	340	281
Cash and cash equivalents	18	745	1,214
		4,225	4,754
Assets held for sale	12	-	860
TOTAL ASSETS		6,217	13,076
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Called up equity share capital	22	2,643	2,643
Share premium account	24	12,614	12,564
Other reserves	24	1,039	1,039
Foreign currency translation reserve	24	261	187
Retained earnings	24	(15,783)	(8,576)
	24	774	7,857
Non-current liabilities
Deferred income	19	313	278
Financial liabilities	19	-	59
Provisions	19	586	160
		899	497
Current liabilities
Trade and other payables	19	4,449	4,572
Financial liabilities	19	17	28
Income tax payable	19	2	122
Provisions	19	76	-
		4,544	4,722
Total liabilities		5,443	5,219
TOTAL EQUITY AND LIABILITIES		6,217	13,076

On behalf of the board

CM Errington                           

28 April 2010                            

Consolidated Statement of Changes in Equity
	Share	Share	Other	Currency	Retained	Total
	capital	premium	reserves	translation	earnings
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	2,643	12,564	1,039	(64)	(8,761)	7,421
Attributable loss for the period	-	-	-	-	30	30
Other comprehensive income	-	-	-	251	-	251
Total comprehensive income/(expense)	-	-	-	251	30	281
Share based payment	-	-	-	-	155	155
At 31 December 2008	2,643	12,564	1,039	187	(8,576)	7,857
Attributable loss for the period	-	-	-	-	(7,364)	(7,364)
Other comprehensive income	-	-	-	74	-	74
Total comprehensive income/(expense)	-	-	-	74	(7,364)	(7,290)
Reclaim of VAT on previous share issues costs	-	50	-	-	-	50
Share based payment	-	-	-	-	157	157
At 31 December 2009	2,643	12,614	1,039	261	(15,783)	774

 

Consolidated Statement of Cash Flows		31 December	31 December
For the year ended 31 December 2009	Notes	2009	2008
		£'000	£'000
Cash flows from operating activities
Loss before taxation		(7,719)	(151)
Depreciation, amortisation and impairment	5	3,841	1,020
Share based payment expense	7,23	157	155
Decrease/(Increase) in inventories		20	(20)
Decrease in trade and other receivables		604	385
Increase / (Decrease) in trade and other payables		170	(1,295)
Movement in provisions	19	494	(40)
Loss on revaluation of foreign exchange instrument		17	-
Loss on disposal of fixed assets		8	-
(Gain)/loss on disposal of subsidiary undertakings	16	(132)	(599)
(Gain)/loss on disposal of businesses	16	1,168	-
Net finance (cost)/income	8	11	(89)
Cash outflow from operations		(1,361)	(634)
Net income taxes received		211	362
Net cash outflow from operating activities		(1,150)	(272)
Cash flows from investing activities
Interest received	8	10	91
Disposal of fixed assets		1	-
Disposal of subsidiary undertakings	16	391	409
Disposal of businesses	16	269	-
Disposal of assets held for sale	12	766	-
Purchase of property, plant and equipment	12	(161)	(213)
Payments to acquire intangible fixed assets	13	(550)	(1,212)
Net cash generated from/(used in) investing activities		726	(925)
Cash flows from financing activities
Interest paid	8	(13)	(2)
Repayment of capital element of finance leases	25	(14)	(2)
Net cash used in financing activities		(27)	(4)
Net decrease in cash and cash equivalents	25	(451)	(1,201)
Cash and cash equivalents at beginning of year	25	1,214	2,300
Exchange adjustments	25	(18)	115
Cash and cash equivalents at end of year	25	745	1,214

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. Basis of preparation

The financial information contained in these condensed financial statements does not constitute the company's statutory accounts within the meaning of the Companies Act 2006. Statutory accounts for the years ended 31 December 2009 and 31 December 2008 have been reported on, without qualification or drawing attention to any matters by way of emphasis, by the company's auditors. Whilst the financial information included in this Annual Financial Report Announcement has been computed in accordance with International Financial Reporting Standards ('IFRS') this announcement, due to its condensed nature, does not itself contain sufficient information to comply with IFRS.

In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the Annual Financial Report. 

Statutory accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2009, prepared under IFRS, will be delivered to the Registrar in due course.  The group's principal accounting policies as set out in the 2008 statutory accounts have been applied consistently in all material respects.

The Annual Financial Report for the year ended 31 December 2009 is available from the website www.gresham-computing.com.  Printed copies of the Annual Financial Report will be posted to shareholders in due course and they will shortly be available for inspection at the UK Listing Authority's document viewing facility at 25 The North Colonnade, Canary Wharf, London E14 5HS.

This Annual Financial Report Announcement was approved by the Board of Directors on 28 April 2010 and signed on its behalf by CM Errington, Finance Director.

2. Responsibility statements under the disclosure and transparency rules

The Annual Financial Report for the year ended 31 December 2009 contains the following statements:

The directors confirm that to the best of their knowledge:

·      The financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the company and the undertakings included in the consolidation taken as a whole; and

·      The Directors' Report Chairman's statement and Operational Review include a fair review of the development and performance of the business and position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

3. Segment information

The group has adopted IFRS 8 Operating Segments in the current year. The adoption of this pronouncement has resulted in changes in the segmental disclosures which reflect the analysis presented on a monthly basis to the chief operating decision maker of the business, the Chief Executive Officer and the Board of Directors.

In addition split of revenues and non-current assets by UK and overseas have been included as they are specifically required by IFRS 8 Operating Segments.

For management purposes, the group is organised into four reportable segments as follows:

·      EMEA - Real Time Financial Solutions

·      North America - Real Time Financial Solutions

·      Asia Pacific - Real Time Financial Solutions

·      Enterprise Storage Solutions

The real time financial solutions segments are suppliers of solutions predominantly to the finance and banking markets.  Included within the real time financial solutions segments are the group's IT staff placement business. The storage solutions segment is a supplier of solutions predominantly to the enterprise level storage market. 

Transfer prices between segments are set on an arm's length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers are eliminated in consolidation.

The results of Redstone Software Inc, a subsidiary of the group disposed of on 2 September 2008 (see note 16), consolidated by the group prior to the disposal are included in the North America - Real Time Financial Solutions segment shown in the following analysis for 2008.

The results of Gresham Software Labs Pty Limited, a subsidiary of the group disposed of on 27 August 2009 (see note 16), consolidated by the group prior to the disposal are included in the Asia Pacific - Real Time Financial Solutions segment shown in the following analysis for 2009.

The results of Storage Director, a business of the group disposed of on 16 October 2009 (see note 16), consolidated by the group prior to the disposal are included in the Enterprise Storage Solutions segment shown in the following analysis for 2009.

The assets held for sale at 31 December 2008 of £860,000 were disposed of during the year (note 12). These assets were included as unallocated assets in the segment information for 2008. The loss arising on disposal of these assets at the time of disposal was £5,000, which is included within loss on disposal of fixed assets in the consolidated Income Statement for 2009.

Year Ended 31 December 2009

	North America RTFS	Asia Pacific RTFS	EMEA RTFS	Enterprise Storage solutions	Adjustments, central  & eliminations	Consolidated
	£000	£000	£000	£000	£000	£000
Revenue
External customer	1,256	1,925	4,398	2,307	-	9,886
Inter-segment	383	425	8	680	(1,496)	-
Total revenue	1,639	2,350	4,406	2,987	(1,496)	9,886
Segment profit/(loss)	30	(374)	(2,097)	(1,042)	(3,881)	(7,364)
Segment assets	253	1,820	852	1,421	1,871	6,217

 

Year Ended 31 December 2008

	North America RTFS	Asia Pacific RTFS	EMEA RTFS	Enterprise Storage solutions	Adjustments, central  & eliminations	Consolidated
	£000	£000	£000	£000	£000	£000
Revenue
External customer	1,463	2,542	7,471	2,419	-	13,894
Inter-segment	23	543	8	809	(1,383)	-
Total revenue	1,485	3,085	7,479	3,228	(1,383)	13,894
Segment profit/(loss)	1,204	156	571	(1,228)	(673)	30
Segment assets	442	2,135	4,384	1,005	5,110	13,076

Included in the Real Time Financial Solutions business segments are:

·      EMEA - £998,000 (2008: £2,790,000) of revenue in respect of the IT staff placement business;

·      EMEA - £2,796,000 charge (2008: £nil) in respect of impaired development costs capitalised (see note 13);

·      Asia Pacific - £249,000 (2008: £347,000) of revenue in respect of Gresham Software Labs Pty Limited, which was disposed of on 27 August 2009;

·      North America - £nil (2008: £344,000) of revenue in respect of Redstone Software Inc, which was disposed of on 2 September 2008; and

Included in the Storage Solutions business segment is:

·      £158,000 (2008: £279,000) of revenue in respect of the Storage Director business, which was disposed of on 16 October 2009.

Segment profit/ (loss) represent segment profit before tax, prior to adjustments for reallocation of share option charges and prior to capitalisation and amortisation of development costs.

Adjustments, central & eliminations

Adjustments, central & eliminations to segment profit/(loss) represent central management functions of £1,153,000 (2008: £1,347,000), including the Board of Directors, group finance, HR, IT and marketing in addition to adjustment made to reflect share option charges of £157,000 (2008: £155,000), capitalisation of development costs of £550,000 (2008: £1,350,000) and amortisation and impairment of capitalised development costs of £3,476,000 (2008: £702,000) and taxation credit of £355,000 (2008: £181,000).

Adjustments, central & eliminations to segment assets represent certain property, plant and equipment, including those classified as assets held for sale, of £nil (2008: £860,000), capitalised development costs of £786,000 (2008: £2,755,000), cash of £745,000 (2008: £1,214,000), and taxation of £340,000 (2008: £281,000).

Geographic information

		2009	2008
Revenues from external customers (by destination)		£'000	£'000
UK		5,313	7,471
Overseas		4,573	6,423
		9,886	13,894
Non-current assets		£'000	£'000
UK		918	3,559
Overseas		1,074	3,903
		1,992	7,462

Non-current assets consist of tangible and intangible fixed assets.

4. Taxation

(a) Tax on loss on ordinary activities

Tax (credited) / charged in the income statement

	2009	2008
	£'000	£'000
Current income tax
UK Corporation tax credit	(263)	(281)
Foreign Corporation tax charge	1	66
Foreign with-holding tax charge	13	34
	(249)	(181)
Amounts over provided in previous years - UK	(7)	-
Amounts over provided in previous years - Overseas	(99)	-
Total current income tax	(355)	(181)
Total credit in the income statement	(355)	(181)

 (b) Reconciliation of the total tax charge

The tax credit in the income statement for the year is lower than the standard rate of corporation tax in the UK of 28% (2008 - 28.5%).  The differences are reconciled below:

	2009	2008
	£'000	£'000
Loss before taxation	(7,719)	(151)
Accounting loss multiplied by the UK standard rate of
corporation tax of 28%	(2,161)	(43)
R&D tax credit - current year	(263)	(280)
R&D tax credit - prior year	(7)	-
Losses surrendered for R&D tax credit - current year	526	527
R&D enhanced relief	(224)	(204)
Utilisation of losses against profit on disposal of overseas businesses	(292)	-
Difference between accounting/tax treatment of disposal	(153)	-
Movement on unrecognised temporary differences	541	(383)
Movement on unprovided fixed asset temporary differences	37	-
Expenses not deductible for tax purposes	-	50
Temporary difference on share based payments	43	40
Income not taxable	-	(136)
Overseas tax	(85)	99
Increase in losses carried forward not recognised	1,683	149
Total tax credit reported in the income statement	(355)	(181)

(c) Unrecognised tax losses

The group has tax losses that are available indefinitely for offset against future taxable profits of the companies in which the losses arose as analysed in (e) below. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the group and they have arisen in subsidiaries that have been loss-making for some time.

 (d) Temporary differences associated with group investments

At 31 December 2009, there was no recognised deferred tax liability (2008: Nil) for taxes that would be payable on the un-remitted earnings of certain of the group's subsidiaries, as the group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future.

The temporary differences associated with investments in subsidiaries for which deferred tax liability has not been recognised aggregate to £nil (2008: £nil).

(e) Deferred tax

Recognised deferred tax

No deferred tax has been recognised in either the group statement of financial position or group income statement (2008: £nil).

Unrecognised potential deferred tax assets

The deferred tax not recognised in the group statement of financial position is as follows:

	2009	2008
	£'000	£'000
Depreciation in advance of capital allowances	121	98
Share-based payments temporary differences	96	51
Other temporary differences	765	225
Tax losses	5,186	3,790
Unrecognised deferred tax asset	6,168	4,164
Gross temporary differences unrecognised	3,507	1,336
Gross tax losses unrecognised	18,522	13,536
Gross deferred tax asset unrecognised	22,029	14,871

5. (Loss) / Earnings per ordinary share

Basic (loss) / earnings per share amounts are calculated by dividing net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted loss per share amounts are calculated by dividing the net profit or loss attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares except when such dilutive instruments would reduce the loss per share.

The following reflects the (loss) / earnings and share data used in the basic and diluted loss per share computations:

	2009	2008
	£'000	£'000
(Loss) / earnings attributable to equity holders of the parent	(7,364)	30
	2009	2008
Basic weighted average number of shares	52,850,890	52,850,890
Dilutive potential ordinary shares:
Employee share options	-	-
Diluted weighted average number of shares	52,850,890	52,850,890
Basic (loss) / earnings per share - pence	(13.93)	0.06
Diluted (loss) / earnings per share - pence	(13.93)	0.06

The employee share options are not dilutive because in 2009 and 2008 they were 'out-of-the-money'.  There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

6. Dividends paid and proposed

No dividends were declared or paid during the year and no dividends are proposed for approval at the AGM (2008: None).

7. Intangible assets

Development costs

Development costs are internally generated and are capitalised at cost.  These intangible assets have been assessed as having a finite life and are amortised on a straight line basis over their useful lives.  These costs are amortised over their useful economic lives of 2 to 10 years (2008: 2 to 10 years). These assets are tested for impairment where an indicator of impairment arises and annually prior to them being made available for use.  The recoverable amounts of the intangible assets were calculated on a value in use basis using discount rates of 12% (2008: 12%). During the year the following impairment charges were recognised:

·      an impairment charge of £30,000 (2008: £nil) was recognised in connection with development costs associated with our Storage Director product, which was subsequently disposed of on 16 October 2009 (see note 16).

·      an impairment charge of £2,486,000 was recognised in connection with development costs associated with our Clareti Cash Reporting product as a result of more cautious growth assumptions and our experience with customers and prospective customers; and 

·      an impairment charge of £310,000 was recognised in connection with development costs associated with our Clareti Banking Virtual Accounts product, as a result of our decision to focus on selling a partner's product in the market which had the knock on effect of reducing our growth and income assumptions relating to this developed product. 

8. Disposal of Gresham Software Labs Pty Limited

On 27 August 2009, Gresham disposed of its 100% equity share interest in Gresham Software Labs Pty Ltd ("GSL") to comForte GmbH for a total consideration of £460,000.  The consideration was satisfied as to £235,000 in cash on completion and £225,000 on 31 December 2009.

The disposal has not been presented as a discontinued operation since the business did not represent a separate major line of business.

Assets and liabilities disposed of other than cash

	£'000
Intangible fixed assets	340
Tangible fixed assets	100
Current assets	48
Current liabilities	(80)
Non-current liabilities	(73)
Deferred income	(116)
Total assets and (liabilities) disposed of other than cash and cash equivalents	219

Cash and cash equivalents relating to the disposal

		£'000
Disposal consideration discharged by means of cash		460
Cash and cash equivalents in company on disposal		(7)
Net cash inflow from disposal of subsidiary undertaking		453
Costs relating to the disposal		(62)
Net cash inflow from disposal of subsidiary undertaking after costs		391

Profit on disposal

	£'000
Total consideration	453
Net assets (excluding cash) disposed	(219)
	234
Costs relating to the disposal	(62)
Deferred cumulative foreign exchange transferred from equity	(40)
Net profit on disposal of Gresham Software Labs Pty Ltd	132

9. Disposal of Storage Director business

On 16 October 2009, Gresham disposed of its Storage Director business to Tributary Systems Inc.  The fixed consideration for the disposal was £831,000, payable in cash. £346,000 was received prior to 31 December 2009, less disposal costs incurred of £77,000.  Deferred consideration of £485,000 is payable as follows: £364,000 is due on or before 30 June 2010 and £121,000 is due on or before 31 December 2010.  There are no performance conditions attached to payment of the deferred element of the fixed consideration. 

In addition, contingent cash consideration is payable by the purchaser based on a minority share of future sales related to the Storage Director business, up to a maximum contingent cash consideration of a further US$1.8m over the five year period from completion.  The contingent consideration of US$1.8m has not been included in the calculation of profits or total cash consideration arising on the transaction.  Any contingent consideration will be accounted for in the year in which it becomes receivable.

The disposal has not been presented as a discontinued operation since the business did not represent a separate major line of business.

Assets and liabilities disposed of other than cash

	£'000
Intangible fixed assets	1,914
Tangible fixed assets	90
Current assets	15
Deferred income	(97)
Total assets and (liabilities) disposed of other than cash and cash equivalents	1,922

Cash and cash equivalents relating to the disposal

		£'000
Disposal consideration discharged by means of cash		831
Cash and cash equivalents in business on disposal		-
Net cash inflow from disposal of subsidiary undertaking		831
Costs relating to the disposal		(77)
Net cash inflow from disposal of subsidiary undertaking after costs		754
Deferred consideration (note 17)		(485)
Net cash inflow for 2009		269

Loss on disposal

	£'000
Total consideration	831
Net assets (excluding cash) disposed	(1,922)
	(1,091)
Costs relating to the disposal	(77)
Net loss on disposal of Storage Director business	(1,168)

10. Principal risks and uncertainties

Liquidity

In the current economy, liquidity risk is something that all companies are seeking to control because access to cash has become a real driver for business compared with prior years.  As a result, Gresham has taken a number of pro-active steps to mitigate and control liquidity risk, which are discussed in note 21.

Regulation

The financial services market is highly regulated and this regulation continues to evolve in line with the perceived risks in the market.  Regulation is typically effected by government, regulatory bodies and industry bodies.  Whilst such regulation is generally good news for a solution provider such as Gresham, it is possible that regulation could lead to a change in the market that limits our ability to continue selling.  We keep a close track on regulation and seek to ensure that our solutions evolve slightly ahead of regulation so as to mitigate the risk of a regulator limiting our market potential.

People

People are key to Gresham's expertise and ability to deliver on a global basis.  Retaining people and allowing them to fulfil their potential is important.  Loss of key people could slow our ability to grow the business and we seek to provide rewards and job fulfilment that mitigates this risk.

Technology

Gresham is an innovative group that develops valuable technology and there is a risk that such technology will be made redundant through copying, further advances in technology or dominant competitive pressures.  We aim to keep our technology updated so as to meet both existing and emerging requirements and remain vigilant to changes in market trends.    Whilst we carefully assess whether to address emerging trends with new technology there is a risk that the market will ultimately move in a different direction leaving us with technology that no longer addresses the needs of the market. 

Wherever possible we seek to protect our technology through patent applications.  We also rely on trade secret, copyright and trademark laws, as well as the confidentiality  and  other  restrictions  contained  in  our  respective  sales contracts  and  confidentiality  agreements to protect our  proprietary  rights.  These legal protections afford only limited protection.

11. Additional information

The following additional information is not extracted from the Annual Financial Report:

Related party transactions

No related parties transactions have taken place during the year that have materially affected the financial position or performance of the company.

Adjusted EBITDA reconciliation

Adjusted EBITDA is calculated as EBITDA before non-cash share option charges, reconciled as follows:

	2009	2008
	£'000	£'000
(Loss)/Profit after tax	(7,364)	30
Depreciation and impairment	360	315
Amortisation and impairment	3,481	705
Interest net	11	(69)
Taxation	(355)	(181)
Option charge	157	155
Adjusted EBITDA	(3,710)	955
Profit on disposal of subsidiary undertaking	(132)	(599)
Loss on disposal of business	1,168	-
Adjusted EBITDA before disposals	(2,674)	356
Restructuring	1,139	150
Adjusted EBITDA before disposals and restructuring	(1,535)	506

 

END

 

 

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